Amazon Merchants Struggle as Fees Rise and Profit Margins Shrink

Amazon has introduced new fees for merchants, including a levy on shipments to its fulfillment centers, increasing costs for small businesses. The changes have sparked criticism from sellers, who claim the fees will shrink their profit margins and force them to raise prices.

Bijay Laxmi
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Amazon Merchants Struggle as Fees Rise and Profit Margins Shrink

Amazon Merchants Struggle as Fees Rise and Profit Margins Shrink

Amazon merchants are grappling with increased fees and decreased profit margins as the e-commerce giant shifts more operating costs onto the small businesses that sell on itsplatform. The changes, rolled out earlier this year, include a new fee imposed in March that charges a levy on shipments sent to Amazon's fulfillment centers.

Why this matters: This development has significant implications for the millions of small businesses that rely on Amazon's platform, potentially affecting their livelihoods and the overall economy. As profit margins shrink, these businesses may be forced to raise prices, which could lead to increased inflation and reduced consumer spending.

For Chicago businessman Duncan Freer, who sells weighted blankets and sleep masks on Amazon, the impact has been significant. The cost of shipping two pallets of his products to Amazon will increase to over $800, a staggering four-fold jump from what it cost in October. Freer expects his profit margin to plummet from 20% to a mere 8% as a result. "Amazon just keeps grabbing more and more,"NEW, CRITICIZED, KICKlamented Freer, whose Amazon sales amount to about $500,000 annually. "It's like a kick in the gut."

While Amazon did reduce the cost of fulfilling each customer order, merchants argue that it only partially offsets the new fees. They are also contending with a trend of consumers increasingly opting for the least expensive products across nearly all categories, as reported by Adobe Inc. This shift in consumer behavior has made it challenging for online merchants to raise prices and maintain profitability.

Amazon stated that the new fees are intended to reflect its own rising costs of distributing inventory across the U.S. to enable one-day delivery on more items, which ultimately helps boost overall sales for online merchants. Company spokeswoman Mira Dix noted that on average, sellers will see a 0.15% increase per unit sold, significantly less than the average fee hikes announced by other fulfillment service providers.

The fee changes are just the latest challenge for the millions of small businesses that sell on Amazon's platform. Revenue from seller services, which includes the Fulfillment by Amazon program, has increased at a faster rate than fulfillment expenses for each of the past seven quarters. As merchants struggle to make money on the platform, some are considering alternative options. San Francisco seller Neil Ayton plans to wind down his Amazon business due to the increased fees and complexity.